Illinois High Court Punts on Hospitals’ Tax Exemptions

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Michael J. Bologna

Illinois tax agencies and medical facilities remain in limbo regarding state rules for hospital property tax exemptions in return for “charity care” after the state Supreme Court declined to address the matter and punted the critical constitutional questions back to circuit court ( Carle Found. v. Cunningham Twp. , Ill., Nos. 120427, 120433 cons., 3/23/17 ).

A unanimous Supreme Court March 23 declined to offer an opinion on the constitutionality of Section 15-86 of the state property tax code, as it pertains to exemptions sought by Carle Foundation Hospital in Urbana, IL.

Section 15-86, added to the code under a 2012 law pushed aggressively by hospitals, sought to create a new category of ownership for charitable property tax exemptions to be applied to nonprofit hospitals and hospital affiliates. Many taxing authorities have argued the provision conflicts with language in the Illinois Constitution, which reserves such tax benefits for public charity institutions.

While the Illinois Department of Revenue, local taxing authorities and nonprofit hospitals all called on the high court to use its “supervisory powers” to rule on the merits, the justices said Carle Foundation’s claims weren’t at a stage appropriate for constitutional evaluation. On jurisdictional grounds, the court reversed a ruling from the Illinois Fourth District Appellate Court, which voided Section 15-86 of Illinois Public Act 97-688 as facially unconstitutional ( Carle Found. v. Cunningham Twp., Ill. App. Ct., No. 140795, 1/5/16 ).

“[W]e have hardly reached a point of ‘last resort,’ where a ruling from this court concerning section 15-86’s constitutionality is the only remaining way of deciding this case,” Justice Robert R. Thomas wrote on behalf of the court. “Accordingly, the exercise of this court’s supervisory authority to address that question is unwarranted.”

The Supreme Court’s ruling leaves the state revenue department in a quandary regarding its backlog of petitions from hospitals for property tax exemptions. The agency imposed a moratorium on new property tax exemptions for hospitals while the case is being litigated.

A spokesman for the revenue department declined comment on the ruling, but acknowledged the agency is sitting on more than 100 petitions from hospitals seeking property tax exemptions.

Section 15-86 Is Good Law

A.J. Wilhelmi, president and chief executive officer of the Illinois Health and Hospital Association, said the ruling retains Section 15-86 as good law. Section 15-86 provides a charitable property tax exemption to hospitals that demonstrate the value of their charitable services equals or exceeds the hospital’s estimated property tax liability for a given year.

“Although the Illinois Health and Hospital Association hoped that the Illinois Supreme Court would address the constitutionality of Section 15-86, we understand and respect the decision of the court to vacate the Fourth District Appellate Court decision in the Carle case on non-constitutional grounds,” Wilhelmi said in a statement.

Wilhelmi said hospitals seeking clarity should look to an appeals court decision from December, Oswald v. Hamer, as the last word on Section 15-86. The appeals court affirmed the constitutionality of Section 15-86, causing Wilhelmi and hospital executives to characterize the Carle precedent as an outlier ( Oswald v. Hamer, Ill. App. Ct., No. 1-15-2691, 12/22/16 ).

‘Oswald’ Reconsidered?

Oswald v. Hamer, however, could also be the vehicle that drives a stake in the heart of Section 15-86. The plaintiffs asked the appeals court for a rehearing last week, potentially leading to reconsideration of the December ruling. Regardless of the outcome, most observers expect the ruling to find its way to the Supreme Court.

Justice Thomas even referenced Oswald v. Hamer during Jan. 12 oral arguments in the Carle case. Thomas asked the assembled attorneys whether the Supreme Court should forgo a decision on the merits and wait for another case without the procedural complications evident in the Carle case.

The case involves a tax dispute between Carle Foundation Hospital and the city of Urbana and several surrounding taxing authorities. The hospital was seeking exemptions for four properties for the period 2004 through 2011, but the taxing authorities resisted after finding the 393-bed hospital didn’t meet the charity care standard.

Carle Foundation won the first round in its campaign for an exemption on a motion for summary judgment in Champaign County Circuit Court. The appellate court reversed in January 2016, finding no constitutional basis for creating such an exemption.

No Jurisdiction for Review

The Supreme Court vacated the appellate ruling under Rule 304(a) and remanded the matter back to the circuit court for further consideration consistent with its ruling.

The rule specifies that in actions involving multiple parties or multiple claims, an appeal can be taken from a final judgment as to one or more of the parties or claims “only if the trial court has made an express written finding that there is no just reason for delaying either enforcement or appeal or both.”

Justice Thomas noted that the Carle action involved 26 separate counts, but the circuit court granted the hospital’s motion for summary judgment as to one count. The high court also determined that the circuit court had resolved a single “issue” in the matter, but not a “claim,” raising jurisdiction questions.

“Accordingly, that order was not appealable under Rule 304(a), and the appellate court lacked jurisdiction to review it,” Thomas wrote.

Carle released a statement expressing support for the ruling but disappointment that the court hadn’t fully resolved the charity care question. In the meantime, the hospital said it views the Oswald decision as the reigning precedent on the question.

“The ‘law of the land’ on the issue of hospital property tax exemption is reflected in the current Oswald decision from the First District Appellate Court (that the property tax exemption statute is constitutional) and will remain in place unless the First District Appellate Court overturns this ruling or until the Supreme Court agrees to hear and ultimately rule on the Oswald case or a similar case in the future,” the hospital stated.

To contact the reporter on this story: Michael J. Bologna in Chicago at mbologna@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of the opinion is at http://src.bna.com/nid.

Copyright © 2017 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State